March 3, 2011 8:32 pm

Tesco pushes into northern California

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Tesco has begun its foray into northern California, with the opening of its first two stores there, indicating the continued expansion of its lossmaking US venture under new group chief executive Philip Clarke.

Tesco said it had opened a store in San Jose, and another in Danville, in the San Francisco Bay area.

A further 10 stores are set to open between now and the end of April, according to the Fresh & Easy website.

One of the key decisions for Mr Clarke, who succeeded Sir Terry Leahy on Tuesday, will be deciding whether to continue with the Fresh & Easy chain, which made a loss of £165m ($269m) last year.

Indications, including the push into northern California, are that Mr Clarke will continue to support the chain for now.

The northern California stores will all be standard Fresh & Easy supermarkets.

However, the Financial Times reported last month that Tesco was planning to extend Fresh & Easy into smaller sized units.

Opening the northern California stores demonstrates that Mr Clarke, who recently visited Tesco’s US operation, is pushing ahead with expansion, despite the highly unusual decision last October to mothball 13 stores, primarily in Arizona and Nevada, hit by the US housing market downturn.

Sir Terry said at the time that he expected Fresh & Easy to break even by the 2012-13 fiscal year. Fresh & Easy, which has more than 160 stores, would open about two stores a week this year, he said at the interim results.

Clive Black, analyst at Shore Capital, said the extension into northern California gave the Fresh & Easy management a chance to prove that the division “can deliver on its undoubted potential, but if it is not delivered, a radical course of action will be followed”.

Mr Clarke is not neglecting the UK, however. In a video message on Thursday, he said he and Richard Brasher, the new chief executive of Tesco’s UK business had “big plans for the future”.

Mr Clarke said he would also concentrate on “getting the balance right between quality and price”.

He added that he would “use the skill and scale of Tesco to create more value than any other retailer.”

Shares in Tesco rose 0.3p to 399,42p.

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